Buy Now, Pay Later (BNPL): Meaning and How Does It Works

As online transactions become more common, one such plan that is becoming increasingly popular is the Buy Now, Pay Later model. As per reports, Buy Now Pay Later online customer base in India was 5 million in 2021 and is expected to grow to 30 million by 2026. It is a popular payment option amongst the younger generation and online shoppers. This article explores BNPL and weighs in on its features, benefits, and associated risks.

What is Buy Now, Pay Later (BNPL)?

Buy Now, Pay Later (BNPL) is an option that allows one to buy goods and services without making the payment at the time of purchase. Instead, one can make the payments in instalments. Buy Now Pay Later is another type of credit transaction widely used online by e-commerce platforms. Usually, the retailer integrates a third-party BPNL platform during the checkout process. This is a good option if one needs to purchase a gadget, home appliance or any other consumer product.

How Does BNPL Work? 

The customer must create an account with a BNPL provider to use Buy Now, Pay Later (BNPL). The process is straightforward, requiring only essential details such as name, address, and date of birth. The BNPL provider will perform a soft credit to assess the customer’s repayment capacity.

Once the account gets approved, the customer can start making transactions on platforms where the BNPL payment feature is available. The customer pays a part of the total amount as a down payment and the rest of the amount is paid in installments. The customer can pay the instalments in over 6-12 months, making it a convenient way to manage expenses.

Also Read: What is Personal Loan Repayment and Types of Loan Repayment Methods?

Key Features of BNPL

The Buy Now, Pay Later (BNPL) model offers key features for consumers like:

Flexible Repayment: BNPL platforms typically offer services usually offer a range of repayment options, such as paying in instalments over a few weeks or months.

Instant Approval: Many BNPL platforms provide instant credit approval. This allows the customer to complete their purchases quickly and without delay.

Minimal Deposit Fee: Customers usually pay a small upfront fee or deposit, with the remaining amount spread across to be paid in monthly fixed instalments.

Hassle-free Application: BNPL application is simple and requires minimal documentation compared to traditional credit options.

Easy Integration with Merchant Websites: BNPL options are widely integrated with online and in-store merchants. This makes it a convenient option for consumers to choose BNPL at checkout.

No Impact on Credit Score: BNPL providers usually do a soft check. Thus, a soft inquiry will not affect the customer’s credit score.

Automated Payments: Customers may set up automatic payments to ensure timely repayment without missing out on due dates. 

User-Friendly Platforms: BNPL platforms offer mobile apps and online dashboards that are easy to use and the customer can easily track their payments, view remaining balances, and manage their account.

Benefits of Using BNPL

Buy Now, Pay Later (BNPL) is a great option for making an expensive purchase while paying in manageable instalments. 

No Interest Fees: BNPL lenders usually do not charge any interest fees on instalments, making it a cost-effective way to finance your purchases

Flexible repayment: BNPL lenders offer flexible repayment options of around 6 -12 months to fit your budget.

Quick and convenient option: Setting up a  BNPL account is simple and once approved, making BNPL payments on merchant platforms is a quick and easy process. 

Easy to manage money: If plan well, you can easily spread out the payments in instalments instead of paying the entire amount upfront. This helps you manage finances better without getting in a financial pinch. 

Also Read: The Dos and Don’ts of Personal Finance Planning

Risks and Drawbacks of BNPL

While Buy Now, Pay Later (BNPL)  is a quick and easy option for making any purchase, one needs to also consider the risk associated with it. Ensure to be aware of the terms and conditions of the BNPL platform you choose.

Overspending: BNPL is a quick payment option. One may form a habit of making multiple such transactions. 

Late Payment Fees: If one defaults on any payment, there are late fee charges that one needs to pay. 

Affects Credit Score: If there are regular instances of defaults on Buy Now Pay Later in EMI, it can significantly affect your credit score.

Always read and understand the terms and conditions of the BNPL platform you choose to avoid any surprises.

How to Apply for BNPL?

Step 1: Select a platform: Identify BNPL service providers in India like LazyPay, Simpl, Razorpay, etc

Step 2: Choose a platform: Finalize on a BNPL platform and visit their website or install their app. 

Step 3: Create an account: Create an account on their platform and complete the KYC verification process.

Step 4: Set up Payment Method: Link your preferred bank account or card details for the payment method.

Step 5: Credit Check: The BNPL platform conducts a soft credit check. This is just to verify whether the customer can repay the amount. Once the BNPL platform approves one account, they can use the BNPL option with participating merchants to shop.

Step 6: Make a Timely Repayment: Ensure to make timely repayments to avoid any penalties.

These are general steps to make purchases using BNPL platforms. Repayment terms will vary across platforms.

Top BNPL Providers in India

Simpl: Simpl Pay Later has a mobile app and has a network of over 26,000 merchants. They have a repayment option without any interest or any hidden fees. Customers can pay their utility bills like gas, and electricity with a single tap. The purchase amount is split into three interest-free payments. If the customer cancels an order, they receive quick refunds. 

Razorpay: Razorpay’s BNPL services have been integrated by a large number of online merchants including e-commerce, education, travel, and more. Customer can opt for their service without any documentation or credit check. In addition to offering a flexible payment plan, a few merchants offer a no-cost EMI option (no interest on instalment) as well. It also has a built-in risk assessment feature which detects any fraud and ensures BNPL options are offered responsibly.

Also Read: Top 12 Signs of a Fake Loan App in India

Conclusion

Buy Now, Pay Later (BNPL) is a convenient payment option that offers benefits like zero or low-interest rates, easy approval, and flexible repayment plans, especially for online shoppers. However, consumers should be mindful of the risks involved. Avoid overspending and late payment fees, which can have an impact on your credit scores. While BNPL is an excellent method for managing expensive purchases, it requires responsible use.